A loophole by any other name would smell as… well, it’d just plain smell

I was planning to report in detail on the House Finance Committee hearing I attended yesterday, including my private exchanges with several of the committee members… but my better judgment has gotten the better of me. Needless to say, it wasn’t particularly exciting, but the turnout in support of these worthy bills was very encouraging.

HB 1069, HB 1094, and HB 1096 all concern greater accountability for the over 500 tax exemptions, deductions, credits and other breaks scattered throughout our state tax code. Hundreds of millions of dollars in new exemptions have been added over the past few years, and that doesn’t even include the $3 billion package for Boeing. It only makes sense, particularly in these tight budgetary times, that the Legislature periodically review these tax “expenditures” to assure that they are producing the social and economic benefits intended.

In testifying, I referred to these as tax “loopholes”, a turn of phrase strongly objected to by Rep. Ed Orcutt (R-Angryville). While my choice of words was admittedly pejorative, I sincerely doubt that most voters would understand what I was talking about if I adopted the Legislature’s happy euphemism of “tax preference.” (I suspect that most voters’ tax “preference” would be not to pay any.)

Whatever.

From his line of questioning, Rep. Orcutt seemed awfully concerned that these bills were just a sneaky way of eliminating some of his cherished loopholespreferences… and I have no doubt that many of those in the room supporting the measures assume that this will surely be the end result. But if these incentive-exemption-thingies can’t survive a little public scrutiny, they deserve to die.

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Gee Goldy- give us a break. More bullshit, this time from the Ecxonomic Opportunity Institute. Let’s see- a loophole is that we don’t pay property tax on our savings account. Let’s just extend the property tax to everyone’s savings, and call it good, huh?

Starting to feel ridiculous yet? You call their report “excellent”- I call it garbage.

And Goldy- Orcutt was right to take you to task- these are not loopholes, or exemptions, or thingies- or even preferences. The largest part of the DOR listing, and what you are all feeding off of, are “Things not currently taxed” but which you want to tax.

Then they can see for themselves how the big bad exemptions really can’t bring in revenue- they can see the “mountain” turn into a molehill before their very eyes. Scroll down this list and watch the billions turn into millions as reality intrudes…

Why don’t you give us the total of the items on this list you’d tax? And use the numbers that would really produce revenue…

I think the Democrats are the real obstacle to tax reform in Washington, since it would be contrary to their best interests to make rich people pay their fair share of state and local taxes.

The fact is, whether people are willing to face it or not, that Democrats have become the party of the rich in the state of Washington. This was not the case historically in Washington, nor is the true in most of the USA at present. However, in our state, it is true at the present time.

In the November 2004, Washington voters making over $100,000 per year voted for Kerry over Bush by 63% to 37%. However, voters making under $100,000 per year favored Kerry over Bush by a narrow 51% to 48%. Similar disparities exist in favor of the Democrats among these rich voters in the Governor and Senate race as well.

By contrast, in the USA as a whole, voters earning over $100,000 per year favored Bush over Kerry by 58% to 41%. But voters earning under $100,000 per year favored Kerry over Bush slightly by 50% to 49%.

In red states, richer voters tend to favor the Republicans by substantially bigger margins than the remainder of the population. In Texas, over $100,000 went for Bush by 78% to 22%, while under $100,000 went for Bush by only 57% to 42%. In Florida, over $100,000 went for Bush by 58% to 42%, while under $100,000 was slightly favoring Kerry by 50% to 49%.

In most blue state, the rich still have a higher support of Republicans, than do the less rich, but usually with a smaller gap. In California, Kerry carried over $100,000 by 52% to 48%, but carried under $100,000 by a wider 54% to 43% margin. In New York, Kerry carried over $100,000 by 58% to 42%, and carried under $100,000 by a slighter bigger 59% to 40%.

In Massachusetts, the GOP has more relatively strength among the rich than in most other blue states. Kerry won aming over $100,000’s by “only” 55% to 45%, but carried under $100,000’s by a whopping 65% to 34%.

It would be nice to take the time to look at all 50 states and see if there are any other states besides Washington where the rich have a marked preference for the Democrats, as compared with the less well off. It is possible that Washington is an anomaly in this regard.

Nevertheless, the Democrats are the party of the rich in our state. And that is why there will be no genuine tax reform in the forseeable future. Democrats will not favor an income tax, since it will hit their base the hardest — both among rich voters and rich contributors.

Instead, the Democrats will favor increasing the existing regressive taxes, which hit poor votes the hardest percentage wise, and still hit the Republican leaning middle class much harder than the rich. You will see the Democrats pushing for an increase in the general sales tax. And you will see the Democrats pushing to increase taxes on soda pop, beer, and medical services — which are even more regressive than the sales tax.

What is the point in proposing a state income tax when everyone knows it has absolutely no chance of passage? And the reason it wouldn’t pass isn’t because of the Democrat-leaning high-income people. Its because of the middle and lower-income people it would actually benefit. The income tax is one of the third rails of Washington politics – touch it and you die.

(I suspect that most voters’ tax “preference” would be not to pay any.)>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Goldy, man of little faith, the voter has shown time and time again that when a good plan is laid out they will vote themselves a tax. The monorail boondoggle is but one shining example (I thought that was a dumb idea but I dont have to pay for it) as well as school levies. The taxpayer is in fact very generous, but they expect something in return for their money.

Sure, the “things not currently taxed” include some obvious items (in your example, savings accounts). But more importantly, they also include many items that WERE taxed at one time and that were then exempted. There may have been good reasons for exempting them at one time, but then again maybe they were either deviously added, or wouldn’t stand scrutiny today. I see no reason why anyone should resist re-examining these exemptions, particularly in view of today’s tough fiscal times.

It is interesting that the same people calling for audits of gov’t programs are the same ones so resistant to even LOOKING at the tax “preferences” – what is the harm in examining the effectiveness of these loopholes-er-preferences? As Goldy says, if they can’t stand up to scrutiny, shouldn’t we be suspicious? I have no doubt many if not most preferences have a sound footing, but shouldn’t we revisit them from time to time and get rid of the ones that are not cost effective? Again, what is the harm in looking at them?

Republicans are all for “accountability” and “transparency” in government when they believe it threatens the power of Democrats or their policies. But the minute you question “no-bid” contracts for Halliburton, lack of paper trails for Diebold, scrutiny for tax breaks that “encourage job creation” you’re proposing “unfair government intrusion”.

I think tax breaks for corporations (like the ones we gave Boeing) should actually be tied to the economic benefits they propose to enable. They don’t have to be tied too strongly, but if we pay $3 or $4 billion to an industry because we are convinced it will help them be more competitive, or create jobs in WA, those same corporations (or their lobbying groups) should be required to show their fulfilling their side of the bargain.

If Microsoft gets a tax break for hiring in state, they should prove their hiring in state. If a developer gets some added economic incentives to build by agreeing to support low income housing, make sure they do that. Fairly simple stuff.

Hard to see how Republicans can object if you frame it that way. Of course, I believe what they’re really afraid of is seeing how expert lobbying on behalf of business associations has shifted the tax burden as far away from corporations as possible. Corporations, through the uses of loopholes, tax breaks, “incentives” and off-shoring (not to mention illegal activities) now pay less in taxes then they have in the last 100 years.

“What is the point in proposing a state income tax when everyone knows it has absolutely no chance of passage?”

That is the sorry, pathetic excuse that the Democrats will use as to why they aren’t proposing a state income tax. If believed, it will avoid any possibility that their wealthy supporters and voters will have to pay a fair share of our state’s tax burden.

Or take a look at the contributors in support of Initiative 884, which would have increased the regressive sales tax by one cent. At least 95% of the major contributors (people giving over $5,000 were nearly 95% of the total donations) are known Democrats — and rather wealthy ones at that.

I would say it is fairly obvious that the Democrats don’t want to push an income tax in this state. Not only did wealthy Democrats contribue millions to increase the regressive sales tax, but the state Democrat party also contributed over $90,000. And the state Democrats didn’t say a word about the income tax in their 2004 platform.

It’s a false equivalency Goldy. “Party of the rich” has been reduced to mean “whichever party rich people vote for”. Of course, the true meaning is “party that rich people control to enact economic policies that benefit them and hurt the poor”.

Wealthy Democrats, including those in KC, consistently vote to support re-distributive taxes or public works. So, wealthy Democrats vote in accordance with the economic interests of the poor. In no way is that equal to what happens when wealthy Republicans vote for tax cuts that favor them while providing little or nothing to the poor.

I wish we had an income tax in this state (along with reduced “fees” – state sales tax, B&OP, property taxes, etc.). I voted for Sims in the primary.

But it will be a cold day in hell before Republicans ever support an income tax in WA state.

Re Richard Pope’s use of high-income Washingtonians voting for Kerry overwhelmingly over Bush as evidence that in this state the Democrats are the party of the rich, I would counter that Kerry was the candidate who was promoting an increase in the income tax rate for people making over $200,000, not Bush.

Here is Christine Gregoire’s wishy-washy answer to the state income tax question, from the same website you linked Dino Rossi’s answer to:

“Proposing a state income tax at a time that we have over 200,000 people out of work and our state is slowly coming out of a recession is the wrong direction for Washington. And I certainly don’t support the idea of Washington having the highest income tax in the nation.”

I can see why you voted for Ron Sims in the primary. And at least Dino Rossi gave a straight answer to the question.

The fact that 200,000 people are out of work is no reason not to have an income tax. If you don’t work, you have less income, and pay less income tax. However, with a sales tax, you have to pay everything you buy something.

And even if Washington replaced every penny of the sales tax (both state and local) with a state income tax, I am sure that our state income tax would not be anywhere near the highest in the nation.

Comment by RDC— 1/20/05 @ 12:27 pm

Kerry has nothing to do with state tax policies. The increase that people over $200,000 would have to pay under Kerry’s tax proposal is still quite a bit less than if these same people had the 3.4% of income they currently pay in state and local taxes raised to the 10% or so that Washington residents pay on average in such taxes.

That particular proposal of Kerry’s would have made sense. And it would have had more credibility if Kerry had spent more of his 20 years in the Senate fighting for policy positions and legislation, instead of windsurfing.

By the way, the Seattle P-I voters guide that you linked to — it asked the same questions for the primary and general. The candidates answered it sometime in August, and the answers were retained for the general election version.

So Gregoire’s answer was deliberately wishy-washy. She wanted to win the primary against Ron Sims, who was proposing an income tax. She figured that position would help her in the primary. But she didn’t want to alienate these same people in the general election. So she basically avoided taking a meaningful or principled position.

Richard Pope comment Kerry has nothing to do with state tax policies>>>>>>>> Yes, I agree, but your post which elicited my comment was chock full of Bush-Kerry comparisons in this state and several others. Making an argument based on those numbers, and then taking umbrage at a comparison of the two candidate’s tax proposals as not being pertinent, is disingenuous. All the Democrats I know favor a state income tax; all the Republicans oppose it. I grant that this doesn’t disprove your point that Democrats are the party of the rich in this state and form the biggest roadblock to tax reform. But you never proved your point to begin with.

Okay, you want some evidence. Here is Exhibit A — a July 25, 2004 Seattle Times article showing the state’s top 50 political contributors. The top 13 people on the list all gave to Democrat causes. Only 10 out of the 50 people on the list are primarly Republican donors:

To truly call a party the “party of the rich”, the party should not only receive the votes of rich people, but should also be financially supported by rich people. The Washington Democrats satisfy both of these tests. (So do the national Republicans, by the way — on the national level, and probably also in a majority of the states, but not in Washington.)

Over 90% of these people (measured by the dollar amount of their donations, if not by actual number of donors) are Democrats. And very wealthy Democrats at that. And the Washington State Democratic Party also spent $91,000 to promote this increase in the regressive sales tax.

A total of $3.237 million, almost all given by very wealthy Democrats, was spent to promote this sales tax increase. The opponents of I-884 spent only $43,000 — mostly from far less prosperous Republicans.

I will change my opinion on this subject if these same wealthy Democrats dip into their deep pockets and come up with three or four million dollars to promote a state income tax initiative — and I mean one without tax loopholes to benefit the wealthy.

Thanks, Richard…I’ll check out your links, but I think this disagreement may be a question of semantics. In this case, semantics are important. The real question is, on balance, which party in the state of Washington (and in the nation) is identified with and favors policies that benefit the rich, and which is identified with and favors policies that benefit the poor and those of modest means? If this question could be answered in an inarguably correct way, we would know which party is really the party of the rich.

The gig is up. The lazy bastards free lunch is coming to an end. How about some personal responsibility. The current shortage of funds is because the government is too big. NOT ENOUGH PEOPLE PRODUCING GOODS AND SERVICES. Anyone who works for government is overhead for the taxpayers. How many did Locke hire during his tenure. 15 or 20 thousand? You see by the election results how accurate the bookkeeping is. Try to have a business and keep books like the election boards do and see what happens. The country is not going to last too much longer if this type of fraud continues without repercussions. Good thing we have our guns, looks like we will need them. Thomas Jefferson knew you bastards would raise your ugly heads soon enough.

The question at the national level is fairly easy to answer. At least it is easy to identify the policies, what their effect would be, and who supports them and opposes them. Look at the proposals for federal tax law changes and the proposals for changes in federal benefit programs.

Which policies do we identify at the state level as benefitting the rich, and which do we identify as benefitting the poor and those of modest means? Or detrimenting these groups, as the case may be.

I think a sales tax increase is pro-rich, because it is highly regressive. An increase in beer tax or soda pop tax is even more highly regressive. So is a tax on medical services.

One might argue that this is not the case, by trying to associate pro-poor spending programs with these regressive tax increases. But that misses the point entirely.

If we increase taxes on the poor and middle class, while giving big business tax breaks (such as the Boeing $3 billion boondoggle, or nearly free stadiums for billionaires), then that is pro-rich.

Goldy, a suggestion for a follow up to: Underage gambling is out of control by Goldy, 11/17/04, 12:04 am

It seems that there are commenters with enough knowledge about the WA tax structure to comment on the amount of local tax revenue provided by the mini casinos. I have heard rumors of 10 to 20 percent of gross. This invasion of mini casinos seems terribly regressive both in terms of attracting $ from poor and middle class gamblers, and blighting our neighborhoods. And don’t get me started on the lottery.

Some facts about the tax take from these would be timely. The state is going down a nasty road by becoming so dependent on gambling, and many cities are eager to keep following.

Comment by Richard Pope 1/20/05 7:26 pm …I think a sales tax increase is pro-rich, because it is highly regressive. An increase in beer tax or soda pop tax is even more highly regressive>>>>>>>>>>>>>>>>>>>>>>>

This is arguable. The increase was to be for public education, which the rich typically don’t benefit from directly (private schools, you know. They do benefit indirectly, of course, as we all do). But I take your point. The general sales tax is very regressive. As for the beer and soda pop tax…yes, they are regressive, but I see such taxes as having the benefit of influencing behavior for the public good. High taxes on cigarettes are probably the best example of this. The problem comes when the government is forced, or one could argue, forces itself, to depend on such taxes for bedrock continuing operations. Anyway, we need a major tax reform in the state. On that, I think most of us agree. It’s when we get to the details that the shooting starts (re comment by Givegoldyfinger).

The sole reason I-884 chose a penny increase in the sales tax to finance a billion dollars in education spending was that their polling and focus groups showed that that was what had the best chance of being passed by voters.

The ironic thing is that a majority of voters view the sales tax as the most fair tax, because “everybody pays the same rate.” They don’t understand how regressive it is, and they fear an income tax.

Now Richard may attack this as Democrats refusing to tax their wealthy contributors (kind of a funny thought… Democrats… party of the rich,) but in fact there really isn’t much choice in WA state. We have (dubious) Supreme Court precedent that an income tax is unconstitutional, and a strict 1% constitutional limit on property taxes. Personally, I’d suggest they finance it by cutting a billion dollars in tax exemptions, but that would just piss off Jim King.

We could extend the sales tax services. Or raise the B&O tax. But then you’d have the business community fighting it tooth and nail. Any suggestions Richard?

Gee — I-884 failed by 60% to 40%, despite over $3 million spent in favor of it (and lots of organized support), and very little being spent against it. Must have been some sort of problem with the polling and focus groups? Not a very accurate methodology, to say the least.

If $3 million was spent promoting an income tax — which most states have — and educating people on the problems with the sales tax — then something might happen. But to increase the sales tax to the highest anywhere in the United States — people have a very obvious problem with that idea, despite any “education” efforts.

The state Supreme Court decisions regarding the constitutionality of a state income tax are totally ridiculous. It is hard to say how the state Supreme Court would rule on the same matter today. I guess no one wants to take that risk. Too bad.

Sales taxes on services can be unfair and favor big business. Let’s suppose that Microsoft spends $10 million a year on in-house legal counsel and $20 million a year in outside legal counsel in Washington. If you impose sales tax on the outside legal counsel’s billings, then Microsoft can simply take more of its legal work in-house to avoid the sales tax. Jim King has made some good points on this issue.

We could change the B & O tax into a value added sort of tax. That would avoid the pyramiding problem, and have many of the same benefits as an income tax.

If rich Democrats really would prefer a fair income tax, then they should work towards these goals. Not trying to hike up our ridiculously high state sales tax. If they detest Bush, then they should do something about our state having a state tax system far more regressive than Texas or Florida.

Richard, I agree with most everything you said, except for the final characterization of Democrats… and the naive notion that $3 million would be enough to change voter’s ingrained fear of an income tax. If it were only that easy, we’d have one.

I-864 had a stupid, regressive funding mechanism. I’m just telling you what they told me… their research said that was their best shot at getting voters to approve the money.

I’m not sure that anyone is still looking at this thread, but having the last word has its own rewards. Number one, while I can’t prove it, I can’t believe that it is the Democratic Party and their wealthy contributors who are blocking a fairer tax system in the state. All anecdotal evidence I’ve seen suggests the opposite (i.e., the Party supports, albeit very quietly, an income tax, and the wealthy supporters, on balance, agree). If it were proven to me that I am mistaken, I might switch parties (at the state level only). Opposition to an income tax is widespread, crossing party lines. Strong and persistent leadership by state officials might overcome this opposition, but the problem for the Democrats is that the Republican Party would fight the idea tooth and nail, and then demonize the Democrats for even bringing up the subject.

If you are still there, Richard, I’m intriqued by the idea of a value-added tax tied to the B&O levy. Maybe you could expand on this in a future offering.

Richard’s points about the tax system are quite accurate, and one of the reasons I support an income tax. In general, fee-based taxes sound like a good idea (pay for use kind of thing), but end up being regressive and eventually leave people feeling “nickle and dimed” to death. It’s what some call “the death of a 1000 papercuts”. So you end up with little support for any additional taxes, even if they’re “fair” and support a good cause.

I supported Ron Sims in the primary because I liked that he was bold enough to propose what I feel this state needs in terms of tax reform. His huge loss proved (again) that income tax is currently the 3rd rail of politics in WA state. No one here as the political “capital” to push through that kind of change. Not Rossi, not Gregoire, not the Dems. It would take a massively popular or compelling political figure to even get people talking about it. With our polarized electorate it’s simply political suicide to have the albatross of supporting an income tax around your neck. Suggesting the Dems come out and support it without laying the groundwork over the long-term is simply a way to get Dems out of office.

There’s also little political support among voters (on either side) for comprehensive reform. No one wants an income tax. Majority of people want to reduce other taxes, except for a levy here or there. And the same people then complain when they have to pay $1 or $5 to use a park. No income tax + reduced other taxes + avoiding usage fees = inability for government to function.

Supporters of the anachronistically named “Club for Growth” (Grover Norquist) love this because they want the government to collapse and shrink massively. The rest of us are just being “penny wise and pound foolish”. People like Tim Eyman have everyone convinced that there really is such a thing as “free lunch”.

Well, if it looks like a duck, walks like a duck, and talks like a duck, then it is a duck. The Democrats may genuinely feel that their position on state tax fairness is that of a goose, but the practical evidence certainly appears to be a duck.

Maybe if the income tax issue and the whole issue of tax fairness were discussed more seriously, then there would be more evidence of where everyone stands. But both parties managed to mention not even a single word about a state income tax in their 2004 platforms. The GOP didn’t even say that they opposed it, nor did the Dems says they favored it.

I have seen the value added tax proposal mentioned in various places. And it is also one of the things that some economists think might be nice on a national level. A lot of people on both the right and the left, including theorists and idealists, like the idea. And it doesn’t hit the individual directly. So it might be politically feasible.

Gregoire would get some respect from me if she would seriously address the tax fairness issue. However, I don’t have much hope, given the wishy-washy position she took in the election (see the quote for her statement in Post # 15 above).

Richard – Dino Rossi did oppose it. It was part of his statement in the voter’s guide. I don’t think it’s fair to say the positions are equal between the parties. The GOP is adamantly opposed, and the Dems are wishy-washy, with a small minority publicly in favor, and a small minority outright opposed.

Rossi and Gregoire each answered a specific question from the Seattle P-I on income taxes in their voter’s guide. Rossi gave a straight NO, while Gregoire really didn’t give much of an answer at all.

NEITHER party said a word about state income tax, pro or con, in their 2004 platforms. The issue is sort of like the third rail of state politics — it will electrocute people very easily. The Dems don’t want to alienate supporters who oppose an income tax. The GOP doesn’t want to alienate supporters who favor an income tax. So neither party officially says anything.

Nor did any candidate mention so much as one word about income taxes in their official voter pamphlet statement published by the Secretary of State:

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